Common Principles for Audits of Public Contracts:
An Opportunity for INTOSAI Cooperation

by Aleksandr Piskunov, Accounts Chamber of the Russian Federation

editor's note: This article describes the formation of a proposed new task force on audits of public contracts that the Russian SAI is planning to establish. SAIs interested in knowing more about the task force and its work are invited to contact the Russian SAI at inorg@ach.gov.ru.

As the volume of procurement spending by most governments across the world
continues to increase, so too does the need for effective oversight by audit
organizations. Although the systems that governments use to acquire goods and
services vary considerably, they typically have several objectives in common, including
accountability, efficiency, and transparency. The purpose of this article is to suggest that
organizations that audit government contracts should work together to identify a set of
common principles to guide such audits to help ensure that procurement contracting
by governmental entities achieves desired outcomes as efficiently as possible.

Problem Statement

When governmental procurement systems do not meet expectations, there are
several unwelcome consequences. Most immediately, the goods and services needed
by agencies or the citizens they serve are not delivered on time when procurement
systems do not function as intended. Governments already struggling under budgetary
pressures may face even greater challenges. Economic development can suffer. The
implementation of international projects ranging from infrastructure to disaster relief
can be put in jeopardy. Perhaps most importantly, public confidence in the ability of
governments to function effectively declines.

For at least the last decade, issues associated with the improvement of national
procurement systems have become important agenda items of such authoritative
organizations as the United Nations (UN), the Organization for Economic
Cooperation and Development (OECD), the World Bank, the World Trade
Organization, the Organization for Security and Co-operation in Europe, and the
International Chamber of Commerce. For example, Article 9 of the UN Convention
against Corruption of 2003 obliges ratifying states to take “necessary measures
to create appropriate procurement systems based on transparency, competition
and objective criteria for decision-making.” Further, the official statement of the
participants of the 2012 G20 Summit in Los Cabos sets forth independent assessment
of national public procurement systems as one of its five requirements.

Such close attention to procurement issues by the international community is far
from accidental. The volume of the public procurement market in the OECD
member states amounts to 10 to 15 percent of gross domestic product (GDP), while
in developing countries and countries with economies in transition it amounts to
25 to 30 percent of GDP.

But the importance of government procurement cannot be measured in numbers
alone. The way a government conducts its procurement activities often reflects the
social contract between the state and its citizens. Procurement systems are largely the creation of a political process that balances the sometimes competing demands
of efficiency, fairness, competition, accountability, and other values. Each country
strikes its own balance on these issues depending on individual needs, circumstances,
and priorities. For example, some countries may place a premium on timely delivery
of required goods and services, while others may be more focused on preventing
corruption. In many countries, the procurement system is not just a means to acquire
goods and services but also a mechanism to accomplish various policy objectives.

A Proposal

Not all of the problems cited above can be addressed, much less solved, by members
of the audit community. But the community clearly has a role to play and the capacity
and will to do so. In this regard, the strategic goal of SAIs is to assess the effectiveness
of procurement to meet public needs. To date, many SAIs have accumulated
significant experience in public sector contract auditing, which is summarized in
relevant methodological materials. The Procurement Performance Model, one of the
most important and useful documents, has been prepared and is regularly updated by
the Working Group for Public Procurement of the Contact Committee of the SAIs of
the European Union member states.

But more can and should be done. A set of principles is needed to guide the conduct
of public procurement audits. Such a set of principles would reflect the underlying
objectives shared by government procurement systems and provide a framework to
enable the audit community to hold governments accountable for accomplishing those
objectives. Given the magnitude of the public procurement market and the complexity
of the issues in this highly sensitive area, it seems reasonable to engage INTOSAI
members globally to develop coordinated approaches and principles for effective public
contract audits.

This idea was expressed by the SAI of the Russian Federation and the U.S.
Government Accountability Office at the 63rd Meeting of the INTOSAI Governing
Board in Chengdu, China, in November 2012. It was supported by the chairman
of the INTOSAI Governing Board, the Secretary General of INTOSAI, and the
INTOSAI Knowledge Sharing Committee.

Task Force on Contract Audit

To implement this initiative, the Accounts Chamber of the Russian Federation is
planning to establish a task force on audits of public contracts.

The task force would have the following objectives:

Develop a common set of principles for public procurement audit consistent with
INTOSAI’s fundamental auditing principles and core values as well as relevant
international documents, such as the Model Law on Public Procurement of the
UN Commission on International Trade Law. These general principles should be
relevant to SAIs and underpin SAI activities regardless of their status, mandate, and national legal systems in providing accountability of contracting mechanisms.
Special attention should be given to ensuring the integrity of governmental
institutions, the transparency of the procurement process, risk management, and
the prevention of fraud and corruption.

Translate these general principles into operational guidelines covering audits of the
entire procurement cycle, including planning and preparation of the procurement,
pricing, value for money assessment, tendering and supplier selection, contract
management, and contract evaluation.

Elaborate manuals on public contract audit in specific sectors and areas that are of
urgent interest for SAIs, such as public-private partnership procurement and audit
manuals for specific types of contracts.

Task force activities and focus areas will need to have an appropriate degree of
flexibility. They will need to address practical issues and needs of countries with mature
public procurement systems and also enhance the role, and even establish benchmarks
for, states where public procurement mechanisms are just emerging. SAIs would
be able to apply the products developed by the task force along with their national
standards and regulations.